Microsoft (MSFT 1.13%) has had an atrocious year. The stock is down 20% for the year and is still down around 30% from its all-time high. However, none of this sell-off is because its business is failing.
Microsoft's business is still growing at a strong pace for its size and is well-positioned to be one of the major artificial intelligence (AI) toolkit providers that succeed as AI becomes more prevalent. This sets Microsoft's stock up well for the future, which makes today's dirt cheap price tag an even more compelling opportunity.
It has been a long time since Microsoft was this cheap, and investors shouldn't wait for a better buying opportunity; the time is now.
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Microsoft's stock hasn't been this cheap since 2017
There are countless ways to value a stock. Any one of them can be tweaked or selected to make results seem more favorable than they are. Net income is a notorious metric for odd accounting practices.
One generally accepted accounting practice (GAAP) rule is that corporations must recognize gain on investments each quarter, even if they haven't sold. For Microsoft, this is a major contributor, as it owns about 27% of OpenAI, the makers of ChatGPT. The valuation on this business has risen each quarter, so Microsoft had to report it as net income, even if it did nothing. That's not actually accretive to Microsoft's earnings.
So I think a better way to measure Microsoft's profitability is through operating income. If we utilize this valuation metric, it hasn't been this cheap since 2017.
MSFT Operating PE Ratio data by YCharts
That's nearly a decade ago, and we've seen a lot of daunting market conditions in that time frame, including the 2022-to-2023 tech sell-off and COVID-19 pandemic. All of those situations seemed far more dire than the market we see today, especially because the outlook for Microsoft is bright.
Wall Street analysts expect 16% revenue growth for Microsoft's fiscal 2026 (ending June 30), then 15% next year. That doesn't look like a company that is failing, and Microsoft's AI presence will be a major factor in driving the stock rebound.
NASDAQ: MSFT
Key Data Points
I think today is a true, once-in-a-decade buying opportunity for Microsoft stock. These prices just don't come around very often, and investors need to take advantage of them while they're available. Microsoft reports its quarterly results at the end of the month, and that could be the catalyst the stock needs to kick-start an incredible rebound.
